KUALA LUMPUR: If there's one thing that analysts and fund managers agree on in their outlook for 2007, it would probably be the direction of the local market – north bound.
With last year's key themes set to drive stock prices even higher in 2007, most also agree that a target of 1,200 points for the KLCI is achievable. Some even say it is quite conservative.
Beyond the 1,200-point psychological resistance level lies at the all-time high of 1,330 points, set at the height of 1993/94 bull run.
Regional markets like Indonesia, Singapore and Hong Kong sailed through their markers last year with relative breeze, with strong liquidity sending stocks higher almost every day.
Even in the United States, where the dollar is falling and all economic indicators are pointing towards a slowdown, the Dow Jones Industrial Average defied gravity by breaching 12,500 points for the first time in the last week of December.
Analysts say the global market is awash with liquidity and investors' risk appetite has also grown bigger. And they expect it to remain so this year. They said the Malaysian market, despite having risen 21% in 2006, remained a laggard if investors were to compare its performance with that of regional bourses over a two-year period.
With some heavyweights starting to look pricey, certain mid-sized and smaller capitalised companies are prime candidates for a re-rating. Assuming, of course, the good news in the last quarter of 2006 that helped shore up the KLCI continues to flow.
Today, StarBiz highlights 10 counters with a good chance to deliver in 2007.
1. ACP Industries
The acquisition of MTD Construction from parent MTD Capital Bhd has boost ACPI's orderbook to RM4.5bil, one of the biggest in the industry. The expected upswing in the construction sector as more projects roll out under the Ninth Malaysia Plan (9MP) would have a ripple effect on ACPI’s precast concrete products manufacturing business.
“We expect better days ahead for ACPI from the 9MP in view of its market leading position in segmental box girders and tunnel lining,’’ OSK Research said.
The company had been making losses over the past three years, but should register a profit in fiscal ending March 31, 2007.
“We are upbeat on its prospects and expect firmer earnings growth as operations are streamlined,’’ OSK said.
The downside remains the cost of manufacturing, with rising prices of key components like steel, cement and sand putting pressure on margins.
The oil and gas fabricator holds a lot of promise. For starters, APB is in the same business as the sector's darling, KNM Group Bhd.
The past year, however, had not been a great one for APB as it posted flat earnings despite a surge in revenue as project delays cut into its profits.
The company has taken steps to mitigate this as well as cap cost overruns, which should help improve margins. As raw material costs stabilise, earnings are likely to rebound strongly in the current fiscal ending Sept 30, 2007.
Meanwhile, access to a new and bigger yard - last year, the group tied up with PSC Industries Bhd to fabricate metal at the latter's yard in Penang - means the company no longer needs to turn down new orders due to facility constraints.
APB made a net profit of RM11.2mil, or 12.7 sen per share, on revenue of RM202mil for the year ended Sept 30.
3. Asiatic Development Bhd
Shares in Asiatic doubled in value last year, yet the stock still looks like a bargain compared with its bigger capitalised rivals in the plantation sector.
At its close of RM4.28 on Dec 29, the stock is valued at 14 times projected earnings of 29.6 sen per share for the year ending Dec 31, 2007. Companies like IOI Corp Bhd, Kuala Lumpur Kepong Bhd and PPB Group Bhd are trading at around 18 to 20 times their forward earnings.
Affin Securities said the discount is not justified.
The company, which is 54%-owned by GENTING BHD, has a total landbank of 66,000ha, of which about 60,000ha is planted. It has also entered into a 70:30 joint venture to develop 98,000ha in Indonesia, with planting due to start in the second or third quarter of next year.
Affin Securities said the commitment under the joint venture was limited to RM3,500 per ha, and other than infrastructure cost, plantation development would be capitalised and was not expected to be a drag on earnings.
The company has a cash reserve of some RM175mil, and no borrowings.
4. CB Industrial Product
Another plantation play although in a different segment. CB Industrial Product Bhd designs and builds automated palm oil mills called Modipalm, which are said to be more efficient and cost effective, yielding potential savings of between 20% and 50% compared with conventional mills.
The company's existing orderbook is estimated at more than RM250mil, having secured more than RM100mil worth of new projects from abroad since August last year.
A new manufacturing site in Klang, targeted for completion in the first quarter of 2007, would double production capacity.
In the nine months ended Sept 30, net profit stood at RM20.9mil, or 15.4 sen per share. For the full year ending Dec 31, 2006 (FY06) net earnings are estimated at 21.4 sen per share and forecast at 33.4 sen per share in FY07.
CBIP shares gained 210% last year to RM4.30.
Eksons Corp Bhd's lack of a timber concession means the stock continues to trade at a huge discount to the bigger boys, despite the rise in plywood prices lifting its profits in recent months,
“We expect earnings to grow at a compounded annual growth rate (CAGR) of 22% over the next years, driven by a combination of rising plywood production and higher selling prices,’’ KAF Securities said in a recent note.
Last year, plywood prices rose 60% on average against a 20% increase in log prices.
Eksons made a net profit of RM18.5mil on revenue of RM172mil in the first half ended Sept 30, 2006 (1H07).
KAF estimated that Eksons’ net earnings would swell to above RM40mil, or 25 sen a share, in FY07 from RM32.6mil, or 19.8 sen per share, a year earlier.
Meanwhile, the company has proposed a capital repayment of 20 sen, to be completed by March this year.
The key catalysts for a positive re-rating include a sustained rise in plywood prices and successful execution of a planned diversification into property development and palm oil cultivation.
6. Green Packet
This Mesdaq giant, with a market value of RM1.8bil, is planning to move to the main board this year. And this is not the only quantum leap that GREEN PACKET BHD will be taking this year.
The company is planning to offer high-speed mobile Internet connection to the masses in a big way.
Green Packet claims that its own developed technology would enable it to start wireless broadband services in all major cities in the country at a cost of just RM250mil, a fraction of that entailed in offering 3G services.
It raised RM270mil last year by selling new shares to mainly foreign investors to fund the planned infrastructure rollout.
While it remains to be seen whether the company would be able to win a Wimax spectrum licence, expected to be awarded early next year, some investors believe that the stock is well worth its price at current levels.
Its profits are expected to remain in the high double digits, with a projected earnings per share of 27.4 sen in fiscal ending Dec 31, 2007, translating to a mere 16.6 times earnings at last Friday’s close of RM4.52.
The stock has risen seven-fold since the company's listing in May 2005.
Conglomerate MALAYSIAN RESOURCES CORP Bhd (MRCB) is a prime candidate for a re-rating. Analysts said despite a 92% jump in its share price in the past one year, the stock remained grossly undervalued. Brisk sales are expected at its 64%-owned KL Sentral project, with demand for office space on the rise.
The company looks set to be a big winner under the 9MP given its niche as an integrated transportation developer and in transmission line projects.
The company has been linked to a number of big-ticket projects. The execution risk, however, remains a concern given the group’s track record.
Market watchers see the company as a potential success story under the government-linked company (GLC) transformation programme.
The ailing national carmaker is a wild card that badly needs a strategic partner to turn around its fortunes. A number of local and foreign parties have expressed their intention to work with Proton.
Market watchers agreed that the earlier the issue was resolved, the better. Shares in Proton had languished for the most part of 2006 as the carmaker sank deeper into the red in its past two financial quarters.
The company is losing market share, with recent models failing to compete with not only foreign makes but also local rival, Perodua.
A sluggish domestic car market last year compounded its problems.
Analysts said the management is finalising a 10-year business plan, with focus on future product lines and strategies to penetrate overseas markets. Its valuation is supported by solid asset backing of RM10 per share.
RHB is one of analysts' top picks for mergers and acquisitions (M&As) play this year.
With the number of bidders that have emerged, investors are looking at a high acquisition premium for control of RHB Bank, the nation's fourth largest lender.
Already the stock was up 57% at its close of RM3.42 last Friday.
Given its fragmented shareholding structure and interest from several big potential buyers potentially leading to a bidding war, RHB's valuations look set to go higher, analysts said.
The stock has a net tangible asset of RM1.99 and a book value of RM2.63. A takeover would probably value the stock at around 1.5 times to two times its book value.
It was slim picking in the initial public offering (IPO) market last year, but early investors in Wellcall have been well rewarded.
Shares in the industrial rubber hose maker, listed on the second board in July, were issued at an initial offer price of RM1. It finished the year at RM2.78.
And despite its stellar performance over the past few months, RHB Research Institute believes that stock is still undervalued.
The research house said the high demand from overseas meant that despite the company's recent capacity expansion, the backlog in orders had increased to 3.5 months from 2.5 months.
And like its peers in the rubber glove sector, Wellcall would also need to constantly expand production capacity to benefit from the strong demand.
“The additional capacity would be well absorbed by increasing outsourcing activities,’’ RHB said.
Analysts expect the group to transfer to the main board after a full year on the second board.
ACPI : [Stock Watch] [News] APB : [Stock Watch] [News] ASIATIC : [Stock Watch] [News] CBIP : [Stock Watch] [News] EKSONS : [Stock Watch] [News] GPACKET : [Stock Watch] [News] MRCB : [Stock Watch] [News] PROTON : [Stock Watch] [News] RHB 1 : [Stock Watch] [News] WELLCAL : [Stock Watch] [News]
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